Estate/gift tax and disbursement questions..

[rattlsnak]

Was wondering on who I need to talk to about getting tax information on receiving some money from my father that is currently in money market accounts. There are three children and my father (90 years old) wants to give all of us @$150K this year as a gift. (We currently get @$15K every year and we are all set up through a trust to receive the estate proceeds once he passes away). I assume the mutual funds/stocks, etc. would have to be sold to raise the cash for disbursement and we are trying to figure out the best way to receive this money with the least amount of tax implications. I've heard everything from you can fill out an IRS form for a gift with no taxes as long as the lifetime amount doesn't go over the inheritance/estate limit. (it wont) and I've heard we have to pay tax penalties and some people say we have to pay capital gains/losses and some say we don't..so just trying to figure out what the best plan is. As I mentioned there are three of us and 1 wants the cash, 1 will take either cash or a rollover of some sort and the 3rd doesn't care and will go with the best way. Anyone been through this before?

[fintstone]

$18,000 per year per person is the limit for a gift tax exemption. He can give each of you and your spouses up to $18K per year (total of $36K) without taxes or impacting the lifetime exemption. Anything more is not taxable until the sum exceeds the $13.61 million lifetime exemption, but he will need to file the IRS From 709 to claim the lifetime exemption.

[Ralph3.]

Find an attorney that specializes in estate planning. Well worth the cost.

[rattlsnak]

Originally Posted by fintstone

$18,000 per year per person is the limit for a gift tax exemption. He can give each of you and your spouses up to $18K per year (total of $36K) without taxes or impacting the lifetime exemption. Anything more is not taxable until the sum exceeds the $13.61 million lifetime exemption, but he will need to file the IRS From 709 to claim the lifetime exemption.

So as long as he fills out that form and it doesn’t exceed the lifetime amount, it’s still considered a gift and no taxes apply?

Originally Posted by Ralph3.

Find an attorney that specializes in estate planning. Well worth the cost.

We have an estate attorney for the trust, but early withdrawal is out of his wheelhouse.

[fintstone]

Originally Posted by rattlsnak

So as long as he fills out that form and it doesn’t exceed the lifetime amount, it’s still considered a gift and no taxes apply?



We have an estate attorney for the trust, but early withdrawal is out of his wheelhouse.

According to the IRS, yes (if it is cash)...but you did not indicate it was an "early withdrawal." Is that a mistaken term and you just mean an early distribution of his estate? What has/is an "early withdrawal for a 90-year-old?

If it is a non-cash asset (like real estate) that is given as a gift, there would likely be capital gains. Those are typically best to transfer as part of the estate as they generally are inherited at current value (no capital gains unless the value increases after the inheritance).

Depending on the size of one's holdings, it is a good idea to transfer wealth now. The current $13.61 million lifetime exemption increased as part of the temporary Trump tax cuts. It goes back to a $6.8 million lifetime exemption in 2026 when income taxes go back up unless it is renewed. That depends on election outcome in Nov). One candidate says he will extend it, the other says he will not.

There is an accountant that posts here that does taxes. Hopefully he will weigh in.

[Tishabet]

Model this transaction as a person to person loan for 150k, you will need a promissory note where the loan is repayable yearly at X% interest (you need to be charging a realistic rate like prime, otherwise usury laws become an issue) for Y years. The rate and repayment period matter here as you want to have your annual repayment amount around the same as the gift tax exemption amount.

After signing the loan docs and getting the 150k, starting next year he (or his estate/executor) forgives your annual repayment i.e. you never actually pay him back for your "loan." This is considered a gift and triggers the gift tax laws, but as long as you are below threshold you will not pay tax. So you get the 150k now, and spread the tax implication over years where it can stay below threshold meaning you do not pay gift taxes.

[greglepore]

My understanding is the same as Fint's with one caveat-if he owes capital gains etc on the funds that he liquidates, he must pay them - the distribution to you is free of gift/inheritance tax if below the lifetime limit.
We held some of my dad's assets (real estate) until death because you inherit them with a "basis step up" that eliminates the capital gains. The decedent never pays them, and your new basis is the value on date of death. Applies to any asset-collectibles, investments , r/e etc.

[rattlsnak]

Originally Posted by fintstone

According to the IRS, yes (if it is cash)...but you did not indicate it was an "early withdrawal." Is that a mistaken term and you just mean an early distribution of his estate? What has/is an "early withdrawal for a 90-year-old?

If it is a non-cash asset (like real estate) that is given as a gift, there would likely be capital gains. Those are typically best to transfer as part of the estate as they generally are inherited at current value (no capital gains unless the value increases after the inheritance).

.

Sorry, wrong term.. Early distribution is correct. Right now his assets are in the market in some form or fashion.. (stocks, CDs, etc) so in order to give cash, he would have to sell/liquidate some of those. So I'm guessing capital gains on that to him but no extra taxes under the lifetime gift ?

I personally would be happy to get my share in any form so is there a way for him to give/roll over assets without cashing them out and him not paying gains?
And if that is possible, then I would have to pay gains on them when I cash them out one day or does even get tracked because it was a gift?

Originally Posted by greglepore

My understanding is the same as Fint's with one caveat-if he owes capital gains etc on the funds that he liquidates, he must pay them - the distribution to you is free of gift/inheritance tax if below the lifetime limit.
We held some of my dad's assets (real estate) until death because you inherit them with a "basis step up" that eliminates the capital gains. The decedent never pays them, and your new basis is the value on date of death. Applies to any asset-collectibles, investments , r/e etc.

ok great, we are doing the same with his real estate..

[fintstone]

If not cash and he has deferred gains (like with investment property), there will likely be capital gains taxes. Of course, if invested very conservatively, maybe not much.

If a retirement account like a 401K (that defers taxes), he would pay the rate of earned income. Real estate and similar should be held if possible (to avoid capital gains) ...as it is inherited at current value (step-up). The only capital gains then come if you hold onto the property and it goes up in value (still not a bad thing).

You pay the income taxes annually on the gains in lots of investments like CDs)...so depending on where he has money, he should choose those. Those will have the same gains/taxes as any other year (less if not held the full year). You mentioned Money Market...typically he pays income taxes on the gains of those now....so that would not change. Taxes have already been paid except for current year or current month (depending on how he pays them).

[berettafan]

Rattle if your dad has more than a few hundred k to deal with you need to get him to a competent estate planning attorney and be there with him for the meeting. do not go into this stuff uninformed.

[rattlsnak]

Originally Posted by fintstone

If not cash and he has deferred gains (like with investment property), there will likely be capital gains taxes. Of course, if invested very conservatively, maybe not much.

If a retirement account like a 401K (that defers taxes), he would pay the rate of earned income. Real estate and similar should be held if possible (to avoid capital gains) ...as it is inherited at current value (step-up). The only capital gains then come if you hold onto the property and it goes up in value (still not a bad thing).

You pay the income taxes annually on the gains in lots of investments like CDs)...so depending on where he has money, he should choose those. Those will have the same gains/taxes as any other year (less if not held the full year). You mentioned Money Market...typically he pays income taxes on the gains of those now....so that would not change. Taxes have already been paid except for current year or current month (depending on how he pays them).

Thank you for all that great info..

Originally Posted by berettafan

Rattle if your dad has more than a few hundred k to deal with you need to get him to a competent estate planning attorney and be there with him for the meeting. do not go into this stuff uninformed.

yes, we have an estate attorney and everything is in the family trust. (house, properties and all the bank, portfolio accounts, etc. )